Skyline Champion Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
August 7, 2024

There are 8 speakers on the call.

Operator

Good morning, and welcome to Champion Homes Inc. First Quarter Fiscal 2025 Earnings Call. The company issued its earnings press release yesterday after the close. I would like to remind everyone that today's press release and statements made during this call include forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Operator

These statements are subject to risks and uncertainties that could cause actual results to differ materially from the company's expectations and projections. Such risks and uncertainties include the factors set forth in the earnings release and in the company's filings with the Securities and Exchange Commission. Additionally, during today's call, the company will discuss non GAAP financial measures, which it believes can be useful in evaluating its performance. A definition and reconciliation of these measures can be found in the earnings release. I would now like to turn the call over to Mark Yost, Champion Helm's President and Chief Executive Officer.

Operator

Please go ahead.

Speaker 1

Thank you for joining our earnings call today, and good morning, everyone. I am pleased to be joined by Lori Hough, our EVP and CFO. On this call, I will first go over the key points from our Q1, then discuss our progress in the Q2 so far and conclude with thoughts about the balance of the year. I'm pleased to report that the positive momentum we carried from our Q4 has not only continued, but strengthened, primarily due to the traction of our strategic initiatives. Our first quarter results reflect good execution across our business, notably in enhancing our customer channels, advancing the integration of regional homes and realizing the early benefits from our Champion Financing joint venture.

Speaker 1

These achievements are closely aligned with our strategic focus, which are increasingly critical in addressing the rising demand for affordable housing amid limited supply. The quarter showcased robust growth with home sales climbing 33% year over year to reach 6,705 units. Additionally, organic sale orders increased 60% year over year, underscoring strong market demand. This growth was supported by our strategic acquisition and improving activity in our retail, older developer and community channels. Demand in Canada remains soft as inflation and economic uncertainty is weighing on the consumer sentiment and enthusiasm for new home purchases in that market.

Speaker 1

Sequentially, our Q1 saw notable increases in revenue, up $91,000,000 alongside growth in our backlog of $89,000,000 bringing our backlog to a total of $405,000,000 as of June 29, driven by improved demand. Backlog lead times were on average 11 weeks versus 9 weeks at the end of the March quarter. We are steadily increasing our production rates at our plants to address this backlog. The acquisition of Regional Homes continues to overperform expectations, successfully integrating and targeting to hit the higher end of the $10,000,000 to $15,000,000 synergy range by the end of fiscal 2025, well ahead of expectations and schedule. Champion Financing, our collaboration with Triad Financial has gained significant momentum recently.

Speaker 1

Over recent quarters, we've launched new floor plan financing options for our independent dealers and consumer financing programs for selected national products and locations. The early outcomes from these initiatives have been very encouraging, bolstering our confidence that we can provide customers with a comprehensive and appealing home buying solution. This success underscores our commitment to enhancing financing accessibility further propelling our growth in the manufactured housing market. I'm also excited to announce that following our Annual Shareholder Meeting, we have changed our corporate company name to Champion Homes Inc. This marks another milestone in our direct to consumer journey and emphasizes our commitment to expanding our market presence and enhancing shareholder value through a cohesive and dynamic brand strategy.

Speaker 1

We are focused on leveraging the Champion Homes flagship brand as a catalyst for growth and commercial excellence for years ahead. Altogether, these strategic actions along with the pace of order growth support our commitment to strengthening our market position and delivering on our promise of providing accessible, comprehensive housing solutions and creating value for our shareholders. As we move into our 2nd fiscal quarter, demand from retailers and builder developers remained solid, reflected in steady ordering patterns that have continued to drive growth. We are also ramping up production in response to these increased orders from community partners. Looking forward, we believe our top line performance for the Q2 is estimated to be flat or possibly down sequentially due to the impacts of weather events that could delay production and or the timing of shipments.

Speaker 1

Despite these challenges, we are focused on maintaining our high standards of quality as we scale production. While traditional new home construction has softened with higher inventory levels and reduced orders, we are seeing a rise in demand. This increase is attributed to more affordable pricing and enhanced quality, positioning our homes as an attractive choice for many homebuyers amid the current economic conditions. Such contrasting trends underlying the distinct market dynamics influencing different segments of the housing industry and the favorable outlook for housing at the middle class price point. Have improved our capture rate of our channel partners and end consumers.

Speaker 1

The positive feedback at recent events and the early successes of Champion Financing demonstrate the effectiveness of our strategies, sparking considerable market interest and opening new growth avenues within the housing market. I will now pass the discussion over to Lori, who will delve deeper into our quarterly financial performance.

Speaker 2

Thanks, Mark, and good morning, everyone. I'll begin by reviewing our financial results for the Q1, followed by a discussion of our balance sheet and cash flows. I will also briefly discuss our near term expectations. During the Q1, net sales increased 35 percent to $628,000,000 compared to the same quarter last year with U. S.

Speaker 2

Factory built housing revenue increasing 40%. The number of homes sold increased 36% to 6,538 homes in the U. S. Compared to 4,817 homes in the prior year period. U.

Speaker 2

S. Home volume during the quarter was supported by additional retail and manufacturing capacity resulting from the Regional Homes acquisition that contributed approximately $151,000,000 to net sales during the quarter. The average selling price per U. S. Homes sold increased by 3% to $91,700 due to a higher mix of retail units sold.

Speaker 2

On a sequential basis, U. S. Factory built housing revenue increased 18% in the Q1 compared to the Q4 of fiscal 2024. We saw sequential growth primarily in the community and retail sales channels. On a sequential basis, the average selling price per home increased 2%, primarily reflecting the quarter.

Speaker 2

Average selling prices exceeded expectations for the quarter as we saw healthy demand across most markets and wholesale price stability. Capacity utilization was 58% compared to 50 7% in the sequential Q4 of fiscal 2024. Current utilization rates primarily reflect the increased capacity brought online through recently opened plants. Canadian revenue during the quarter was 21,000,000 representing a 24% decline in the number of homes sold, which was partially mitigated by a 5 percent increase in the average home selling price. The average home selling price in Canada increased to $124,500 due to a shift in product mix.

Speaker 2

The reduction in sales volume can be attributed to a combination of factors, including higher interest rates and economic uncertainty in key markets that have tempered buyer enthusiasm of new homes. These conditions are anticipated to continue to impact the housing market dynamics in these regions in the near term. Consolidated gross profit increased 27 percent to $164,000,000 in the first quarter and our gross margin contracted by 170 basis points from 27.9% in the prior year period. The lower gross margin was primarily due to lower wholesale average selling prices on new homes sold and changes in product mix to homes with fewer or lower cost options. In addition, margins were impacted by the effect of purchase accounting increases to the carrying value of the finished goods inventory that was acquired with the Regional Homes acquisition, which had a negative 50 basis point impact on consolidated gross margin during the quarter.

Speaker 2

We expect this purchase accounting impact to continue in the near term as we sell off the remaining finished goods inventory acquired. On a sequential basis, gross margin came in better than anticipated due to the increase in captive retail unit sales, stabilization of average wholesale selling prices, lower input costs and synergy capture from the Regional Homes acquisition. SG and A in the Q1 increased $38,000,000 to $109,000,000 The increase is primarily attributable to the Regional Homes acquisition. In addition, we incurred a charge of approximately $8,000,000 in the Q1 related to the change in fair value of the earn out related to the acquisition. It's important to note that the maximum earn out amount of 25 related to higher revenue and profitability.

Speaker 2

Net income for the 1st quarter decreased 11% to 40 $6,000,000 or $0.79 per diluted share compared to net income of $51,000,000 or earnings of $0.89 per diluted share during the same period last year. The decrease in EPS was driven by lower gross margin and higher SG and A, including the impact of the Regional Homes acquisition. Adjusted net income per diluted share was $0.91 excluding the fair value adjustment for the regional earn out accrual and the company's share of ECN's calendar first quarter loss of $1,200,000 As a reminder, we record the impact of our equity investment in ECN's common shares on a 1 quarter lag. The company's effective tax rate for the quarter was 22.5% versus an effective tax rate of 25.2 percent for the year ago period. The effective tax rate was positively impacted by an increase in recognition of tax credits related to the sale of energy efficient homes.

Speaker 2

Adjusted EBITDA for the quarter was $5,000,000 compared to $67,000,000 in the prior year period. Adjusted EBITDA margin was 11.9% compared to 14.4% in the prior year period, which was impacted by lower gross margin and higher SG and A. With demand returning and the stabilization of wholesale product mix, we feel gross margins have returned to more normal levels. Going forward, we expect gross margins will be impacted quarter to quarter by fluctuations in wholesale unit volume sold through our captive retail operations versus independent channels. As of June 29, 2024, we had $549,000,000 of cash and cash equivalents and long term borrowings of $25,000,000 with no maturities until 2026.

Speaker 2

We generated $85,000,000 of operating cash flows for the quarter compared to $75,000,000 for the prior year period. The increase in operating cash flows reflect higher adjusted net income and more favorable working capital changes versus the prior year, partially offset by the growth in our independent dealer floor plan receivables. In the quarter, we leveraged our strong cash position and returned capital to our shareholders through $20,000,000 in share repurchases. Additionally, our Board approved the replenishment of our $100,000,000 share purchase authority, reflecting confidence in our strong cash generation. I'll now turn the call back to Mark for some closing remarks.

Speaker 1

Thank you, Lori. The future looks exceptionally promising for our company, especially in the context of the broader housing market. While traditional new construction is facing challenges, we are seeing strong demand from retailers and builder developers, revitalized ordering volumes from our community partners and a persistent need for affordable housing solutions. We believe these factors position us well for sustained growth and success. Moreover, with our strategic expansions into builder as a service with digital platforms and consumer retail, along with innovative financing solutions, we are set to expand our growth and enhance stakeholder value.

Speaker 1

Before we move on to the Q and A session, I would like to extend a warm welcome to our new General Counsel, Laurel Krueger. Laurel brings a wealth of experience and proven leadership to our team, making her a fantastic addition. Additionally, I want to express our heartfelt thanks to Bob Spence for his invaluable contributions to the company. We wish him a well deserved and enjoyable retirement. And now operator, please open the lines for questions and answers.

Operator

And we'll move first to Greg Palm with Craig Hallum Capital Group. Your line is open.

Speaker 3

Yes, good morning. Thanks for taking the questions and congrats on the good results here. Yes, I just curious if you kind of look back on the quarter, give us a little bit of color around maybe where you saw some of the outperformance on relative to initial expectations? I'll start there.

Speaker 1

Yes. I think orders, Greg, were probably stronger than we anticipated in the quarter. I would say what we expected was a little bit more kind of, I'll call it, fragmented demand, certain markets, certain geographies better than others. What I think really surprised during the quarter was the consistency of order demand and the strength of it. So in other words, we saw order demand across all of our channels.

Speaker 1

So between builder developer between retail builder developer communities, all of them saw year over year order growth between 40% 60%. We saw geographies that were balanced. So all of our geographies, whether it's the South, Central, Northeast, everywhere except Canada, we saw consistency of order rate strength in the kind of 20% to 70% type range across all of our geographies. So every geography was strong, every distribution channel was strong. So I think that was a pleasant surprise during the quarter overall.

Speaker 1

And then our team did a very good job on the retail side selling and regional homes and the acquisition there combined with the flywheel of financing is really starting to over perform our expectations on the acquisition side.

Speaker 3

Yes. Okay. That's great. And you mentioned Q2 fiscal Q2 guidance consistent to maybe a little bit below. It's surprising a little bit just given kind of the quarter ending backlog.

Speaker 3

So I guess the question is, is there some built in conservatism around potential weather events this quarter? Or is it based on kind of what you've seen in July and maybe spots like Texas? Maybe just give us a little bit more color there, please.

Speaker 1

Yes. I think it's a little bit looking at potential timing and deliveries with tropical storm or hurricane tropical storm Debbie and some of the impacts that could have on delivery timing as we go into August September timing. So it's really just an anticipation of where the storm is headed and how that's going to affect delivery timing in certain geographies, Greg. I think order pace continues to be strong through July. So it's really more of a timing issue of how we think through that piece.

Speaker 3

Yes. Okay. I'll leave it there for now. Thanks and best of luck.

Speaker 1

Thank you.

Operator

We'll move next to Daniel Moore with CJS Securities. Your line is open.

Speaker 4

Thank you. Good morning, Mark. Good morning, Laurie.

Speaker 1

Good morning, Dan.

Speaker 4

I'll start with maybe just the cadence of demand. From part of your prepared remarks, it sounds like traditional retail steady at a higher level as we move into fiscal Q2. Is that correct? And or are you seeing kind of continued strength or build there on the retail side?

Speaker 1

Yes. Retail, I think is has been building through the quarter, still very, very strong. Like I mentioned a few minutes ago, actually, we've seen strength in actually all of our channels. So they've actually been all kind of scaling up on the order growth side. I do expect retail to soften a little bit with the weather conditions, probably in some of the East Coast markets for a few weeks.

Speaker 1

But other than that, just customer demand has been exceedingly good.

Speaker 5

Got

Speaker 4

it. And maybe just a little bit more color on the community side. Last quarter, I think you described 1 or 2 more builder developers that you signed on. How are those conversations going? And is that recovery gaining momentum versus, let's say, 90 or 180 days ago?

Speaker 1

Yes. So the community channel, I would say, is healthy. It's not robust. They're coming back in kind of a sequential manner. So not all of them are back, but it's healthy, good demand overall.

Speaker 1

We anticipate that to continue to pick up over time. The builder demand was probably a little bit of a shining star for the quarter. It was our highest sales channel. Builder is up 40% year over year. So we saw strong growth in builders, followed by retail.

Speaker 1

Organic retail was up like 27% during the quarter. So both of those channels as far as sales deliveries were up considerably. We signed up many, many new builders during the quarter. So that pace of new builder sign up is accelerating. It's a multiple of what we signed up last quarter previous quarter.

Speaker 1

So that's gaining traction at an accelerating rate, which is good to see.

Speaker 4

Excellent. And then you discussed early on kind of managing that weeks of backlog. I'm just trying to understand it sounded like you would be ramping production to make sure backlog doesn't get too much higher, but kind of how do you think about where we are today? Is that a comfortable level? Would you like to let them continue to build a little bit?

Speaker 4

Any thoughts there?

Speaker 1

Yes. I think getting backlogs to 8 weeks to 12 weeks is normal. I think given the timing of the year, given the election cycle, all those things and the volatility on that, it's generally better to be a little bit on the higher side of backlog than lower, just given uncertainty what the Fed is going to do and other things. But we continue to monitor the order pace. And as I mentioned, our backlogs have grown even since our June end quarter end.

Speaker 1

So we've seen continued order pace accelerated, which is surprising for July because of the holiday. Usually that July holidays order pace slows down and it's been strong through July thus far. So I think increasing production to ramp through that is going to be important. So we don't have too long of backlogs overall for our customers.

Speaker 4

Makes sense. And then Laurie, appreciate the color. It sounds like we're back to a quote kind of new norm with obviously fluctuations around the mix. But 26% a reasonable kind of place to think about over the next quarter or 2 from a gross margin perspective?

Speaker 2

Yes, Dan. The gross margins are going to we're going to expect to see them impacted quarter to quarter by the fluctuations in wholesale unit volumes sold through our captive retail versus independent channels as well as our wholesale product mix, single wide versus double wide and option content. So, hard to predict based on all of those different variables, but could fluctuate, by 100 or 200 basis points.

Speaker 4

Got it. That's it for me. I'll jump back with any follow ups. Thank you.

Speaker 1

Thank you, Dan.

Operator

We'll move next to Mike Dahl with RBC Capital Markets. Your line is open.

Speaker 5

Hi, thanks for taking my question. Nice to see the progress here. Laurie, I want to stick with the margins. So like a quarter ago, I think the near term guidance was for a gross margin that was kind of in the mid-23s and now we're sitting here at 26 and calling that normal 250 basis points. That's a pretty material difference over a short period of time in terms of how to think about near term expectations.

Speaker 5

You mentioned now a few times the mix impact. You also mentioned the input costs in your opening remarks. Can you maybe just bucket out? I'm interested specifically in terms of what some of the lower wood products costs impacted the margins and how that's expected to flow through the next quarter or 2 as well? And then maybe just put some if you can put some quantifiable buckets around the other pieces that would be helpful as far as what actually drove the 2Q upside back up to this 26 or 1Q upside?

Speaker 2

Hi, Mike. Thanks for the question. We're not going to really bucket the components. I would say that going forward, the retail versus wholesale product mix and how much is going through our captive retail versus directly to independents is certainly going to impact margins, as well as option content going forward. During the quarter, we did see the option content kind of level off.

Speaker 2

So we stopped the decline that we had been seeing of less features and options and lower priced features and options that we had been seeing in prior quarters. So we feel comfortable that we've hopefully hit a trough in that mix component, but we are seeing a great deal of mix in single wide versus double wide at the whole sale level. And from quarter to quarter, how much is flowing through captive versus independent. So, unfortunately, I can't give you a clear answer other than there is variability.

Speaker 5

Okay. I guess then just as a follow-up to the 2Q question, you do have backlog that gives you some indication of mix. And Mark, you called out some of the weather potentially impacting retail dynamics in the quarter. So based on what your expectation is for the near term of shipments in 2Q, calling it 100 to 200 basis points fluctuation quarter to quarter, I appreciate that can be the range, but can you help us understand more specifically for 2Q where you'd expect to fall out against that?

Speaker 1

Yes. I think, Mike, if you look at the quarter, depending obviously on the specific geographies that the weather comes in, probably somewhere around 150 basis points would be a fair barometer to think about depending on how things shake out. It's a little too early to tell to be honest with you because it's just all the data coming in. But I think that would be a safe kind of area to be in.

Speaker 2

Mike, I think overall in the Q1 we saw more captive retail sales than we were expecting and that we would expect to continue based on seasonality and the weather events that Mark is talking about.

Speaker 5

So sorry, if I can just respond to that one. So in terms the captive retail mix, it's so understand that the weather could be a headwind. But as far as you've also built out that part of the business, so on a more go forward basis beyond the very near term, are you saying that 1Q was elevated in terms of that captive mix even relative to what you might expect later in the year?

Speaker 2

Yes.

Speaker 5

Got it. Okay. Thank you.

Speaker 1

Yes.

Operator

We'll move next to Philip Ng with Jefferies. Your line is open.

Speaker 6

Hey guys. I guess in an environment where the consumer is certainly weakening, especially the low end, a choppy, thick bill starts environment is pretty impressive, the momentum you're seeing guys. So I guess what's driving some of that pickup in that activity in your perspective? I'm curious to get your latest thoughts on how channel rates have kind of been behaving with rates coming down lately?

Speaker 1

Yes, Phil, and good morning. I think overall, we're seeing the customer base that's coming to retail and other channels is really looking for an affordable price point home. And I think we can fill that need. So really, we're seeing that buyer who's disenfranchised with site builds and what they can get the value trade off for what they can get. And I think we're starting to see more and more of that.

Speaker 1

And that's really facilitated by a few things. Our direct to consumer marketing programs and online shoppers have picked up significantly. So we're getting a much higher capture rate than we were before that's allowing us to capture those customers. Additionally, some of the drivers with Champion Financing and obviously our retail footprint and what we're able to do with the combination of those 2 is creating a flywheel momentum that we've got in that channel. So I think it's it really is it's you're seeing customers amid short supply and high costs come to a better alternative.

Speaker 1

So we're starting to see that momentum.

Speaker 6

Any color on channel rates late? I mean, 30 year fixed rate mortgage come down quite a bit in the

Speaker 5

last few weeks.

Speaker 2

Hi, Phil. So the channel rates were relatively flat during the quarter, averaging around 9%. So they do have a tendency to lag the 30 year fix.

Speaker 5

Okay. That's helpful.

Speaker 7

And then Mark, you gave

Speaker 6

some color on perhaps 2Q being down sequentially due to weather, but backlogs and orders sound pretty robust. Can you kind of help us think about sales, how that could progress seasonally through the rest of the year?

Speaker 1

Yes. So I think overall versus where our expectations were last quarter, Phil, I think we expect the Q2, Q3 and Q4 all to be higher than what we were thinking probably last quarter. Generally from second quarter or the first half of the year to the second half, we have more maintenance outages. So I think generally things are slightly down in the last two quarters of the year from just a time and holiday standpoint. So we'll watch orders as they come in and see how aggressively we ramp, but I think that's our take right now is first half is going to be stronger with this quarter's results and second quarter being higher, kind of in this flat to down from where we are today.

Speaker 1

And then 3rd and 4th coming in stronger than we anticipated last quarter, but maybe slightly down from the first half just due to timing of production.

Speaker 6

Mark, would you see like a bigger normal seasonal bump in 3Q just given how 2Q is depressed due to weather or that's not something you envision?

Speaker 1

Yes. I mean we could. Phil. It's a little too early. I want to see how the election cycle and demand feathers out and how we kind of phase into backlog.

Speaker 1

I mean, obviously, if order rates continue at this pace, then obviously, we have to relook at things and how aggressive we produce. But right now, we're kind of keeping it slow and steady, ramping up the backlog with a little extra as we get into the election cycle and then feather that in for the second half of the year. And if orders come in and continue to come in at the pace they are, then we're going to have to rethink about getting more aggressive with ramping up top line.

Speaker 5

Okay, super. Appreciate the color.

Speaker 1

Thank you.

Operator

We'll move next to Matthew Dooley with Barclays. Your line is open.

Speaker 7

Hey, guys. Good morning. I want to go back to the the captive retail versus wholesale. So obviously regional revenues were up, I guess 40% or so sequentially and legacy Champion was up more like 10%. So kind of thinking about the June quarter here, presumably there's going to be geographic differences, of course.

Speaker 7

So I'm and it sounded like you were a little surprised by how strong the captive retail business was overall. So, what I'm trying to get at is, what do you think drove the sort of better performance out of captive retail? Was it just geographic differences? Or as we think about the June quarter, I mean, is this really going to be kind of a typical seasonality that we now see for you guys owning this business that, hey, look, there is going to be a big kind of seasonal bump there in the June quarter? Thank you.

Speaker 1

Yes. Good morning, Matt, and thank you. I think overall, a few things are driving the captive business. 1, their geographies are strong. I will also say in those geographies, So it's kind of a win win on the captive retail.

Speaker 1

And a lot of that is coming from the acceleration of the synergies and bringing products from legacy, Champion plants to the regional retail locations and the success having with that expanded product offering and also to just the enhanced marketing, the culture of Regional is phenomenal, the people and leadership is phenomenal. So I think overall, we're just very pleased with that acquisition and the integration and the teamwork between the teams in taking care of the customer. So I think all of that has been very strong, which is why it was so healthy. If you remember the prior quarter, we had a lot of our shipments go into inventory. And now those are going through that funnel of retail into the end consumer.

Speaker 1

So we had somewhat of a pickup there because of just the timing. If you recall last quarter, a lot of it was tied up and finished good inventory. Now it's actually going through. So I do think there's always going to be a seasonal pickup in retail. In generally, the, I'll call it spring summer months, you usually have a great pickup in retail, I'll call it post tax return time.

Speaker 1

A lot of people use tax returns as a down payment. So you'll get a bump usually coming in there. And then as you get into the August, September timeframe, normal seasonality starts to decline a little bit in retail and then go through the holiday season where things are a little slower. So you will see seasonality, yes.

Speaker 7

Got it. That's super helpful color. Yes, kind of a combination there of your initiatives and the seasonality there. Because then it goes back to the gross margin and ASP question. Is it crazy to think that, okay, as you do have maybe a greater wholesale mix going into the latter half of the calendar year that perhaps the ASP would then reflect that.

Speaker 7

So kind of this surprising improvement in this quarter, maybe we could kind of see that give back a little in the second half from an ASP perspective. And maybe just higher level, I mean, if there is going to be more seasonality in the business, should we also think that the gross margins, of course, will therefore be more seasonal than we have seen in years past? Thank you.

Speaker 2

Hi, Matt. Yes, your analysis of ASPs is spot on. So as that mix of wholesale versus retail shifts, we're going to see a shift in ASP along with the number of single lives versus double lives and the option content. So it all goes into that all of that variability will impact ASPs and margins. Okay.

Speaker 2

Thanks, Laurie. Thanks,

Speaker 1

We'll

Operator

We'll move next to Jay McCanless with Wedbush. Your line is open.

Speaker 1

Good morning, everyone. So with all these new different product types you're selling builder, developer, parts, etcetera, could you maybe rank order from top to lowest? What are your highest to lowest gross margin sales between these different pieces and revenue sources in the business?

Speaker 2

Yes, Jay. The gross margins out of our wholesale gross margins out of the plants are relatively consistent from product type to product type. The fluctuations come with option content.

Speaker 1

Got it. And then also just kind of you talked about the synergies from regional being at the top end of the range. I guess what's a good fixed SG and A number for us to use going forward just to kind of think about the new businesses you all brought on and some of the other things that have been happening? And also, is there going to be a breakout at some point for Champion Financial or how should we model that going forward?

Speaker 2

So the synergy capture from Regional is going to be primarily coming through the cost of sales gross margin line. And the SG and A, I would say with the exception of the $7,900,000 earn out adjustment, we're kind of at the new normal for SG and A levels. And our SG and A runs around 35% variable. From a Champion financing perspective, we have concluded with our auditors that we're going to be consolidating the joint venture. So the majority of that is going to be running through revenue with an offset to a minority interest line on the face of the P and L representing Triad's 49%.

Speaker 1

Okay. That sounds great. That's all I had. Thank you.

Speaker 2

Sorry, Jay. I just wanted to remind you that we record those results on a 1 quarter

Speaker 1

lag. Got it. Okay. Thanks, Laurie. Appreciate it.

Speaker 1

Thanks, Jay.

Operator

And it does appear that there are no further questions at this time. I would now like to turn it back to Mark for any additional or closing remarks.

Speaker 1

I want to thank everyone for your attention this morning, and we look forward to updating you on our progress on our fiscal Q2 earnings call. Thank you and have a great day.

Operator

This does conclude today's program. Thank you for your participation. You may disconnect at any time and have a wonderful afternoon.

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Key Takeaways

  • Q1 home sales rose 33% year-over-year to 6,705 units with organic sale orders up 60%, driving revenue up $91 million and a backlog increase to $405 million (11-week lead time).
  • Strategic initiatives are accelerating: the Regional Homes acquisition is ahead of schedule toward $10–$15 million in synergies, and the Champion Financing JV’s new floor-plan and consumer financing options are showing encouraging early results.
  • First-quarter net sales increased 35% to $628 million, U.S. homes sold grew 36% to 6,538 units with an ASP up 3% to $91,700; gross profit climbed 27% to $164 million despite a 170-bps margin decline, and adjusted EPS was $0.91.
  • Balance sheet strength: $549 million in cash, only $25 million of long-term debt, $85 million in operating cash flow, $20 million of share repurchases completed and a $100 million buyback authorization replenished.
  • For Q2, demand across retail, builder/developer and community channels remains robust, though sequential revenue may be flat or down due to weather-related production and shipment timing, with normal seasonal patterns expected thereafter.
A.I. generated. May contain errors.
Earnings Conference Call
Skyline Champion Q1 2025
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